Strategy: Inside-Out View, SWOT & CSR

• Strategy 2 focuses on the inside-out view and internal resources.
• Lecture date: February 11th

Agenda for the lecture

• Outside-in versus Inside-out View
• Stakeholder Theory
• Corporate Social Responsibility (CSR)
• A break
• Inside-out View of Strategy (focusing on internal resources)
• SWOT Analysis
• Scenario Planning

Learning Goals

• Develop insight on how to implement stakeholder management and corporate social responsibility in organizations
• Articulate resource-based view of the firm
• Explain core competencies and their applications
• Understand how to conduct a SWOT analysis

Required Reading

• Nike Inc. case study (2019)
• Rhodes (2022) "Nike: the Race to Wokeness" in Woke Capitalism: How Corporate Morality is Sabotaging Democracy, Bristol University Press

Outside-in vs Inside-out

• Outside-in: Where does the firm compete; Industry, Geography and Activity
• Inside-out: How does the firm compete; core competencies and resources

Analysis stages

• Analysis
  • External (environment) and Internal (firm) analysis
  • Stakeholder-Management
• Options
  • Mission and Vision Values
• Business level and Corporate level
• Selection
• Integration into SWOT
• Strategy evaluation and selection
  • Strategic program

Analysis - Priority Setting

• Determine which stakeholders to analyze and the sequence for analysis
• Study customer and supplier markets to segment markets effectively
• Analyze competitors and determine the industry's attractiveness, strategic groups, and competitor strength
• Analyze additional stakeholders like suppliers, cooperation partners, and investors
• Analyze general environment to evaluate "strategic issues" from strategic analysis and foresight

Stakeholder Theory according to Edward Freeman (1984)

• Any individual or group that can affect or is affected by the achievement of an organization's objectives is a stakeholder

Evan & Freeman's (1993) more precise definition of "affects" and "affected by"

• Principle of Corporate Rights: Corporations must not violate others' rights
• Principle of Corporate Effects: Corporations are accountable for their actions' effects

Traditional management model

• Shareholders, customers, suppliers and employees all surround the firm

New Network Model

• The firm is surrounded by government, competitors, customers, shareholders, suppliers and Civil Society
• Customer, employee and civil society are also stakeholders

Why Stakeholders Matter

• Milton Friedman: businesses should operate in the interests of their owners only
• Freeman: Others have a legitimate claim on the corporation
  • Legal Perspective: Stake in the corporation already legally protected (contracts)
• Economic Perspective:
  • Externalities are outside contractual relationships
• Agency Problem: short-term owner interests vs. long-term manager, employee, and customer interests

Different Forms of Stakeholder Theory, according to Donaldson & Peterson (1995)

• Normative Stakeholder Theory: Provides a reason to consider stakeholder interests
• Descriptive Stakeholder Theory: Ascertains whether and how corporations consider stakeholder interests
• Instrumental Stakeholder Theory: Questions if considering stakeholder interests benefits the corporation

Stakeholder Thinking in an International Context

• Stakeholder theory terminology is relatively new in places like Europe or Asia
• General principles have been practiced for some time
• Examples:
  • German Advisory boards include employees
  • Scandinavian Cooperative Advantage at IKEA, Novo Nordisk, H&M
  • "Keiretsu" in Japan (Chaebol in Korea) is a network of banks, manufacturers, suppliers, and service providers

Business Roundtable 2019 Statement

• Commits to delivering value to customers, investing in employees, dealing fairly with suppliers, supporting communities, generating long-term value for shareholders and valuing all stakeholders
• Raised questions about the trustworthiness of the commitment and its potential impact under President Trump

How to manage tensions between stakeholders

• Reflexivity: Accept tensions/paradoxes and learn to live with them, building reflective routines. (Alvesson & Spicer, 2016)
• Deliberation: Communication to create mutual understanding and agreement. (Habermas, 1996)

Responsible leaders as initiators and moderators

• Balance interests and find collective solutions using democracy theories
• An important approach is Jürgen Habermas' theory of deliberative democracy (1998, 2001)
• Strategic considerations emphasize efficient resource allocation, while questions of morality/sustainability need a communicative action orientation

Achieving communicative action orientation means leaders should:

• Initiate and moderate exchanges with stakeholders towards understanding and collective solutions
• Foster a communicative orientation by minimizing jargon, making opposing views heard, encouraging participation, exposing hidden interests, and institutionalizing debate
• Moral imagination entails perceiving norms, roles, and relationships, heightened awareness of moral dilemmas and mental models

Value-Net-Framework:

• Thinking complements instead of competing involves how to make the pie bigger, not fighting over a fixed pie
• Brandenburger/Nalebuff (1996, p. 12)
• Composed of competitors, company, customers and complementors

The Deep Crisis of Confidence regarding the Economy and the Difficult Stance of CSR

• Capitalist system is under siege and business is viewed as a major cause of economic problems
• Business is perceived as prospering at the expense of community
• Business legitimacy has fallen

In "The Social responsibility of business is to increase its profits", Milton Friedman argued against CSR based on:

• Only humans have moral responsibility
• Managers should act solely in shareholders' interests
• Social issues are the state's domain, not corporations'

Counter arguments for being morally responsible:

• Literature generally supports some degree of corporate responsibility
• French (1979): Every organization has a corporate internal decision structure
• Moore (1999): Organizations have values that dictate right and wrong within the organizational culture

Corporation Social Responsibility is supported by:

• Business Reasons:
  • Enlightened self-interests: more customers, committed employees, forestalling legislation, long-term benefits
• Moral Reasons:
• Corporations cause social problems and should use their power responsibly
• All corporate activities have social impacts
• Rely on contributions from a wide set of stakeholders and not just shareholders

Corporate Social Responsibility

• Chance: Observance of rules and tax compliance
• Expected by Society: Short-term profit maximization, defective risk management, no measurement of social aspects
• Reactive CSR: CSR as prevention of bad practices, risk and reputation management and moral compliance
• Proactive CSR: CSR as realization of good practices relation to core business, strategic anchorage, leads to differentiation

Positioning requires:

• Analysis of the initial situation through internal and external analysis:
• Analysis of resources
  • Types of resources and intellectual capital
• Analysis of capabilities
  • Skill-mapping, skill-cluster, value chain
  • Check lists (strengths/weaknesses-analysis)
  • 7-S Model analysis
  • Analysis of core competences
  • Identification of core competences
  • Verification of core competences

The Strategist's Job

• Accumulate and utilize resources that create competitive advantages (Huff, Floyd, Sherrman, & Terjesen, 2008)
• Resource-Based Model of Performance: Resources (tangible/intangible), Capabilities and Routines, Distinctive Competencies, Competitive Advantage will create above-average performance

Resources can be tangible or intangible

• Tangible
  • Financial, Physical and IT based resources
• Intangible
  • Stock, Human, Structural and Cultural resources

Core Competences

• Collective learning in the organization to coordinate diverse skills and integrate streams of technology
• Composed of precision mechanics, fine optics and micro electronics

VRIO Concept

• Value
• Rarity
• Imitability
• Organization
• Slide builds on concept from Barney/Hesterly (2006)

Positioning requires:

• Integrated view of influences
• Analysis: SWOT analysis
• Which developments can be expected if opportunities and threats “meet” strengths and weaknesses?
• Strategic Business Area Scenario Matrix: Which frequently used capabilities are particularly valuable for central scenarios?
• Options: Methodology of systems thinking. How do modifications of individual variables of the firm or the environment affect the overall firm's business system?

SWOT Analysis Framework:

• Examines how strengths and weakness correlate to opportunities and threats

Scenario Planning at Shell

• Need to recognize challenging images for what might happen
• Purposes: to challenge the 'mental maps' that managers use to think about the world and how their business fit, identify trends and discontinuities that may be poorly defined or weakly indicated today, but which in the future may be significant for their business to provide a background against which business strategies may be formulated and tested.

Basic Activities to Achieve Success

• Scanning
  • open
  • Intuition
• Monitoring
  • Focused
  • Analysis

Weak Signals

• Signs for "discontinuities” need to be detected early in fuzzy and ill structured environments (Ansoff, 1976)
• The goal is for the firm to respond on time

Next steps include

• Presentation on "X Management: An Overview" in tutorial group of 3
• Next Lecture: "Strategy 3: New Forms of Strategy" on 25/2
• Read Hambrich and Fredrickson 2001 Are you sure you have a strategy?